Posts Tagged ‘Interest rate’

So You Want to Buy a House in 2015 (or Refinance)?

If you are looking at the mild, dry weather this winter and the low interest rates and thinking “We should look into buying a house this year,” then this is for you. Likewise, if you have an interest rate above 4.25%; want to change from a 30 year fixed to a 15 year; have PMI on your loan but an increased house value; have an FHA loan with PMI of 1.35%; or want to convert an ARM to a fixed, this is for you too.

But, in order to get a new loan, there are a few things that you should know.  Though some of them are “self-evident” and would appear to the untrained eye to be common sense, trust me that they are not. I would say “don’t try these at home” but, if you don’t try these you will likely not be able to buy or to refinance your home!  To get a loan you need 3 basic things: good credit, sufficient income/employment and assets.

Credit Items:  If you have a mortgage on your house, pay it on time EVERY month. Just one late payment in any year can disqualify you from getting a loan for 12 months. Similarly, if you carry credit card balances, at least pay the minimum payment when it is due.  Having a late payment on your credit card can drop your score by 20-50 points in the months following that late payment.  To keep your credit score highest, keep the credit card balances to less than 25% of the credit limits. MP900405592

Do not incur additional debt while you are in the loan process.  That means, no new “toys,” furniture, trips, cars etc.  As one client told me when his initial loan approval was subsequently declined for leasing a new car, “you didn’t tell me NOT to lease a car.” So, though I never told him “TO” lease a car, I am telling you now not to do this (or at least not to do it before you check with your lender first).

The credit reports you get from the consumer credit reports are not the same credit reports that lenders use. As a result, the credit scores are generally overstated (sometimes significantly). Do not rely on these when applying for a loan. Have a credit report run by a professional (i.e. as noted above, do not try this at home).

Finally, one of my favorites, do NOT co-sign a loan for anybody at any time (other than student loans for a child). Co-signing is the same as signing as far as the banks are concerned.  If the loan payments are made late, or worse, not at all, it will destroy your credit for a very long time.  As Nancy Reagan would advise “Just say No.”

If you have credit issues, address them up front so they can be explained and dealt with early on.  If they exist, they will come up.  Not only that, but when the tax liens and collection accounts appear, we are not going to believe that “this is the first you are hearing of this.”

I Quit My Job Income/Employment:  Do not change (or worse) quit your job during the loan process (And Yes this happens. And No, it is not an isolated incident). If possible maintain a stable work history in the same job preferably or at least within the same line of work for the two year’s prior to applying for a mortgage loan. While there, find out if your employer has a procedure in place for verifying employment.  A lot of large companies and government entities have an online procedure that requires a code from the employer.

When you are asked to provide all of the pages of your tax returns, do not just send the first two pages or the random pages you feel like sending. We need to see all schedules to determine if there are other properties owned, unreimbursed business expenses, etc. Yes, we know that the tax returns are long yet we still need ALL pages.

If you are self-employed, find out what your tax returns show.  Do not tell us when we inquire about your income, “I don’t know what he (i.e. accountant) puts down.”  I know a lot of accountants and generally (though I won’t swear for all of them), “he puts down” the income and expenses based on the results of your business and the documentation that you provide to him.

Assets:  Cash may be king in life, but not in mortgage lending. All assets that will be used in the purchase of a house need to be located at a financial institution and “seasoned” in the account for at least 2 months.

Writing a Check

If you are getting a gift for some of the downpayment it needs to be from a blood relative. And, the source of the relative’s assets needs to be provided via a copy of their account statement. We understand that your uncle does not want you to see his bank statement. But, by making a gift, those assets are now part of the loan file and they need to be verified like
any other assets.

As with the tax returns, ALL pages of your bank statements mean “All pages.” We are aware that the last few pages may be blank, or contain printed text or have copies of your checks. But, we need these too. While we are at it, do not move money between your accounts without telling us first and unless absolutely needed for the downpayment or closing costs. Otherwise, we will need many more statements and possibly explanations. This applies especially to any large deposits that are made into your account during the two month’s prior to applying for a mortgage loan.

You are now ready to apply for a loan. If you follow the suggestions above, you will avoid 80-90% of the issues that arise during the loan process. Good luck.


New Requirements for Mortgage Servicers

A. Disclosure Before An Interest rate or Payment Adjusts: On an adjustable rate mortgage, prior to the first adjustment date, a borrower must be given a disclosure with the following information:

1. An estimate of the new interest rate and the monthly payment

2. Comparison to the current interest rate and payment. (Example: Current interest rate is 3.5% and payment is $2,000 per month. New interest rate will be 4.0% and payment will be $2,200 per month.)

3. An explanation as to all aspects of the adjustment

a. how the new payment is determined (e.g. 1 year treasury plus 2.75. That is if the 1 year treasury is .25%, the new payment will be 3.0%)

b. the effective date of the adjustment

c. when the next interest rate adjustment and future adjustments will occur

4. If there is a pre-payment penalty

5. Alternatives that the borrower may pursue if the new mortgage payment is unaffordable

6. A list of housing counselors

B. Monthly Mortgage Statements: Monthly mortgage statements must be made easier to read or more understandable to borrowers. They will need to include:

1. Dollar Amount and due date of the next payment

2. A summary of the mortgage terms such as interest rate and principal amount outstanding.

3. Itemization of payments indicating principal, interest, fees and escrows

4. Recent transactions including breakdown on the fees, charges and payments

5. If the borrower has missed 2 monthly mortgage payments, a notice must be included in the monthly statement about the delinquency, amounts needed to bring current and consequences of failing to do so.

C. Servicing Improvements: The CFPB was very concerned about the operations of the mortgage servicers. Borrowers were complaining of getting the “runaround,” not having mortgage payments credited promptly, losing records, etc. So the CFPB is implementing a number of common sense policies and procedures for the handling of borrower’s accounts:

1. Payments Credited Promptly

a. payments must be credited the day they are received

b. if the payment includes the mortgage payment amount and escrows but is missing some fees (e.g. late fee), it still must be credited the date it is received for the amount included

2. Request for Balances: Servicers must respond to a borrower’s request for a “Payoff Letter” within 7 business days of receiving a request for it. This avoids delays in closing on refinances and sales. (Note. This is probably still a bit too long and should be about 3 business days).

3. Accurate Records: Servicers must maintain all records for at least 1 year after a loan is repaid or transferred.

a. Records must be easily accessible and capable of being compiled quickly

b. Policies and procedures need to be enacted by servicers so they can provide the information quickly to borrowers, investors and the courts

4. Errors Corrected and Information Provided: Servicers are required to acknowledge and respond to borrowers with respect to requests for errors or information requests as follows:

a. Acknowledge the request from a borrower within 5 days of receipt of written notification of an error

b. Within 30-45 days the servicer must (i) correct error and notify borrower of same; (ii) conduct an investigation and notify borrower of the results or (iii) notify the borrower that the information is not available

c. Examples of errors include (i) incorrect calculation of credits and payments; (ii) incorrect payments from escrow account; and (iii) inaccurate information about foreclosure avoidance